Logging in PNG: The axe falls

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PAPUA NEW GUINEA RAINFOREST CAMPAIGN NEWS

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Forest Networking a Project of Ecological Enterprises

http://forests.org/

3/18/98

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Title: Logging in PNG: The axe falls

Source: Pacific Island Monthly (Fiji)

http://www.pim.com.fj/mar_98/mar_98.htm

Date: March 1998

Byline: Sam Vulum

PAPUA New Guinea's forest industry is struggling to survive under

depressed market conditions brought about by the collapse of Asian

economies.

The industry, which depends entirely on the Asian market for its log

exports, had taken a downward slump in 1997 and worse is expected in

1998 if market conditions do not improve.

The problem is compounded by high log export taxes imposed by the

World Bank and the Government's continuing "blind eye" attitude

towards the plight of the industry.

The Papua New Guinea Forest Industry Association, which represents 85

per cent of timber producers in the country, told Pacific Islands

Monthly that the slump, which began in July, 1997, had hit disaster

mark in January with more logging companies suspending operations and

about 1000 employees laid off in recent months. In total, about 4000

jobs have been lost since July.

The association's research officer Robert Tate said those still in

operation were concentrating all their efforts on shipping October and

November stockpiles, and there was very little fresh felling.

He said the value of the stockpiles, building up since July, was about

$US14 million. The average export price has fallen from $100 a cubic

metre in November to $90 a cubic metre, and the old stocks were

selling for as little as $65 a cubic metre.

The industry was especially concerned about the decline in the

Japanese and Korean markets, which Tate said accounted for 80 per

cent of PNG's log exports.

Korea in particular had stopped buying completely. PNG exported $US59

million worth of logs to Korea in 1996, but would be lucky in the

figure touched $10 million this year.

He said Korea's standards weren't high, compared to Japan.

"This is causing a lot of problems for producers in trying to sell

their lower grades and lesser known species," Tate said.

He said Rimbunan Hijau, which controlled 45 per cent of the total

timber industry in PNG with a normal production of about 1.2 million

cubic metres a year, was down to about five per cent of that figure.

He confirmed earlier media reports that Turama Forest Industries in

Gulf Province had closed, and that Vanimo Forest Products in West

Sepik and Madang Timbers in Madang were operating at reduced levels.

The other timber producers are located in New Ireland, New Britain,

Milne Bay, Morobe and Central Province.

The FIA has called for an immediate cut of 20 per cent in export tax

rates, to allow producers some alternative to closure.

The problems faced by the industry came to light in October in a news

report that at least 2000 workers had been laid off and 1000 more were

expected to lose their jobs as 10 major timber companies wind down or

rationalise their operations to cope with low world prices.

The National reported that the Turama Forest Industries, the largest

employer in the Gulf province, was the latest to shut its operations.

The paper said police were keeping a close watch on the properties of

the Vanimo Forest Products after the company began laying off workers.

The company was planning to lay off 500. Madang Timbers laid off

some of its workers and had frozen further recruitment.

Company manager Peter Hii told the National that Asian countries,

which are major buyers of PNG timber, were entangled in a major money

market crisis which in turn had drastically affected timber

exports.

Hii said The Philippines, one of the company's major markets, would

find it absolutely impossible to buy from them as its currency had

fallen well below the point where they could viably conduct business

with PNG exporters.

PNG exporters would have to reduce their prices by a massive 40 per

cent to sell to them, an option which Hii said was not possible. Hii

said he had 20,000 cubic metres of quality hard wood logs, worth US$3

million, awaiting an opening in the market.

He said demand for sawn timber from the company's two large sawmills

had also declined. Tate said that a total of 1500 workers had been

laid off from Turama logging companies.

"Timber market prices are still falling and we can't sell logs because

we will be making a loss from the produce and the timber companies are

doing that right now," he said. The association had earlier predicted

an average export price of US$100 per cubic metre as being possible by

the end the year.

"We have reached US$100/cubic metre now and the market price is still

falling. We may be looking at a further drop to US$90 by the end of

November. This would be a fall of US$28 or 25 per cent since July and

35 per cent since July 1996," Tate said.

"The market decline has not bottomed-out yet. Other international

timber producers in Canada, Sarawak and Sabah in Malaysia, are

aggressively cutting prices for processed timber and logs for the

Japanese market in order to protect their market share and avoid stock

build-ups.

"As the price cutting continued, we see no hope in prices for PNG

forest products until March-April 1998 after the Japanese winter shut-

down of building activity.

"The FIA is hopeful that the Government and the World Bank authorities

will recognise the plight of the industry and take immediate steps to

engage in meaningful dialogue with the industry with a view for

ensuring viability and sustainability."

Tate said the current and forecast state of the forest industry will

have serious implications for the Government's budget.

The PNG Government in the past had collected about K150 million a year

in export tax from log exports. Current market indications are that

shipping volumes in November and December will be down 50 per cent

compared to 1996. This will have a severe impact on government

revenue. Tate told PIM that they have made many representations to

the Government, seeking a reduction on the 20 per cent export tax, but

their efforts have been to no avail.

He said at current prices, operators cannot recover costs of

production and the imposition of the 20 per cent tax on FOB value only

increases the losses.

Tate said the cut on the tax rate would eliminate the tax at the low

end of the market and may allow producers some alternative to a

closure.

He said, initially, the Government responded with a proposal to reduce

rates by seven per cent in November and possibly a further review of

rates this month (March 1998) depending on market conditions.

The FIA is also concerned about certain timber producers, who are

receiving special treatment from the Government.

The association said in January it was most disturbing to see special

deals being exercised which give some producers unfair advantage over

others in these difficult times.

Executive officer Belford said: "When we reported our concerns last

year about special export tax reductions for certain operators, we

were told that it would be rectified and that all the sector would be

taken into account in any review of export tax.

"Clearly this has not happened and we understand that some log

exporters have the advantage of a 50 per cent reduction in export tax

payable on their exports. This puts them at an unfair advantage over

all other producers and we'll call on the Government for an even

playing field in matters over which it has total control.

"The FIA brought the shortcomings of the current export tax

impositions to Government attention two years ago and as markets

changed prices tumbled, our repeated requests for fair and flexible

treatment have been justified.

"However, the problem will not be fixed by favouring one operator over

all others. The FIA urges the Government to immediately terminate

special "one-off" deals on export tax and institute a general

reduction of up to 20 percentage points which will keep operations

ticking over. Without that, there is no hope for stability in the

sector."

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